It’s inevitable.

At some point (if you haven’t already), you’re going to need to take a moment and hash out the details of your business with your insurer. Here, Neil Friedman of Friedman Associates sites down with SBI to answer a few questions to help in that process.

What are some of the things someone  can say that may or may not set right with his or her underwriter?
If one of their comments is “our insurance is to pay claims,” we pretty much know that we have to be very careful with this person because insurance is a transfer of risk for the unexpected. If your attitude is ‘I can do what I want to do because I have insurance,’ that tells me you have no safety programs in place, and you don’t care about safefy, which tells me you are going to have claims because your employees aren’t going to be supervised properly. In order to keep rates down, one of the things we look at is your loss history, so when we work with our clients, we want to help them prevent claims, which helps lower cost. Insurance should really be for peace of mind — it’s for that once in a lifetime happening that could put you into bankruptcy.

How can a business owner describe his or her business in a way that will benefit him or her?
Well, we don’t practice “creative underwriting.”  We want to know what you do. If you have an employee that does multiple jobs, for the sake of worker’s compensation, the rules say you take the highest exposure job, and pay the premium on that. But, if you have a way to break your payroll down into percentages of what he does, and you can prove that, then you can save some money.  For example, if you tell the worker’s comp auditor you have a handyman (for routine maintenance), but you tell them he occasionally does roofing, his entire payroll is going in the roofing class, which is a huge rate, like 18-22 percent of payroll. So you have to be aware of worker’s comp classes.

But you don’t encourage people to withhold anything, right?
No, no no no no. You don’t want to lie. If the guy went up on the roof one time, you know, that’s alright. But if you get a hard-nosed guy, or if you are in the assigned risk pool for bad claims, or have an agent who doesn’t have a lot of insurance companies to represent, you may end up there. Those who work for assigned risk carriers tend to be very strict, where other underwriters may take a look at it and say, “no big deal.”

Is there anything you should make a point to mention to your underwriter?

Yes, you should mention if your company offers safety programs, and you have a drug-free work place ­— especially random drug testing, because that gives you a 5 percent discount on worker’s comp. You should mention if you have mandatory post-accident drug testing, which we highly recommend. In Virginia, if the primary cause of a worker’s comp claim is because the employee is under the influence of anything, you don’t have to pay the claim.

How do you shop around for an agent?

Well, there’s two kinds of agents. Captive agents, and there are employees of the insurance company, and they pretty much let their agents do something if they can’t do it. So if you go to a Nationwide, AllState, State Farm, a Farmer’s agent, and if their company will write the class of business, they can only write that kind of business. They can’t shop you between carriers. That’s not to say you shouldn’t use one, Nationwide is very fine company with good products. You just have to understand who you are dealing with. Then you have independent agents, which have many companies they represent. If you have a large company, you need to match your company to the size you are doing business with because they have thresholds they want their people working in. There are companies we won’t go after because we don’t have the expertise or staff. So from a client’s standpoint, you should know who you are dealing with, and our suggestion is don’t go nuts. Shop 2-3 agents every 2-3 years. You don’t want to shop for agents every year. When we see those kinds of customers, we don’t really want to waste our time with them.

What are the red flags for agent shopping?

Be careful of the classes and agents that lowball rates. Digging into the policies, you may discover they use incorrect premium basis. As an example, most contractors’ liability insurance is based on payroll. And if their proposal doesn’t have basis they are using, you don’t know where that premium is coming from.  The client really needs to know what their unit cost is so they know their classes the are talking about. Compare apples to apples.

At  what point should a business owner find an insrance agent?

Anyone in business should have proper insurance. Insurance is to protect your assets. If you have nothing, you have nothing to protect. If you are just starting out, why spend a lot of money on insurance when you don’t have anything to protect? His major thing is putting bread on the table and getting the business off the ground. As soon as the business is off the ground, though, it’s a good idea. And, if it’s a small business, we’re not talking about large premiums.

So you should at least be prospecting?

Well you need to understand what your potential costs are. We’ve seen a lot of people get in trouble because they grow their business and an auditor comes in and — particularly in the construction trade — everyone says they are “independent contractors,” which is a big red flag.  A gentleman came in here yesterday and told us he has no employees. Well, after speaking with him, we found that he doesn’t have any employees, but several “independent contractors,” and that they don’t have any insurance. His company requires him to carry workers’ comp, but he says “he doesn’t need to carry it because he doesn’t have any employees.”

How important is it to have a good relationship with your agent/underwriter?

Extremely important. You may need to fly things by them at anytime. For example, before our clients sign contracts, they send them to us.

Where is the balance of finding affordable, yet thorough insurance?
Well that’s the issue. You cover the primary exposures. You don’t need collision on vehicles on 10 years or more, or a “Cadillac” policy. What everyone needs is good basic liability, worker’s comp and auto.

— interview conducted by Jessica O. Swink